The Legal Aspects Of Mergers And Acquisitions

Mergers and acquisitions involve a range of complex legal requirements that must be understood to guarantee a successful transaction.

Any significant changes to how a company is run and managed can be highly challenging. 

With the potential for tensions to run high, appointing a reputable solicitor is essential to ensure the process runs smoothly.

Before we discuss the legal aspects of mergers and acquisitions, let’s consider them as a whole.

What Is The Meaning Of Mergers And Acquisitions?

Mergers and acquisitions refers to ‘the consolidation of companies or their major business assets’ through financial transactions between companies.

While a merger takes place when two companies combine forces to create a joint organisation, an acquisition is when one company takes over another.

Merging or acquiring a company is a complex process. So, what are the legal aspects of mergers and acquisitions, and what role do solicitors play?

The Legal Aspects Of Mergers And Acquisitions

The legal aspects of mergers and acquisitions include, but are not limited to:

1. Legal due diligence
2. Deal structuring 
3. Representations and Warranties 
4. Non-compete and non-solicit clauses
5. Closing conditions

1. Legal Due Diligence

The first legal aspect of mergers and acquisitions is due diligence.

Conducting comprehensive due diligence is crucial when considering a mergers and acquisitions transaction, and specialist solicitors will help you identify and mitigate potential risks or liabilities.

Excellent legal teams often stand out amongst the competition through due diligence, as the most experienced solicitors can add significant value to the transaction with exemplary attention to detail.

Additionally, they’ll be able to identify important details among a pile of information and potentially flag any issues that could lead to litigation later.

This emphasises the importance of choosing the right legal team for a business, as they enable you to make an informed decision based on the most accurate information. 

2. Deal Structuring 

The next legal aspect of mergers and acquisitions is deal structuring.

It is a solicitor’s role to structure the best deal for you as their client.

This can involve an array of legal and financial considerations, from determining the purchase price to choosing the legal structure of the transaction to the tax consequences of the structure that is agreed.

Company and commercial solicitors can also advise on whether to purchase an entire company or its assets.

3. Representations & Warranties 

Acquirers must include several representations and warranties in the terms of their transaction.

These help to avoid litigation for the acquiring firm in issues such as:

• Tax.
• Compliance.
• Authority. 

Breaches of these representations and warranties are serious as they can result in indemnification claims from the acquirer.

4. Non-Compete & Non-Solicit Clauses

Next, we have non-compete and non-solicit clauses, which are crucial legal clauses in most transactions.

This is essentially a promise by both the buyer and the target company that, for a certain time period after closing, they will refrain from:

• Engaging in business activity that is competitive (Non-compete).
• Attempting to lure/hire away each other’s customers or employees (Non-solicit).

These clauses prevent businesses from starting copycat companies straight after the transaction. 

5. Closing Conditions

Lastly, a crucial legal aspect of mergers and acquisitions is the closing conditions.

The conditions detailed in the definitive agreement are subject to closing conditions.

Both parties can work towards closing the transaction for months or even years if it’s a particularly complicated transaction.

Generally speaking, completion is achieved when authorised representatives of both parties attend a meeting, and all parties confirm that the closing conditions have been met before the definitive agreement is signed.

A Lawyer’s Role In Mergers & Acquisitions

Lawyers play a fundamental role in mergers and acquisitions. Their role includes, but is not limited to:

Preparing Documentation

Company and commercial solicitors play a fundamental role in preparing all the necessary legal documents. 

This can involve drafting and reviewing contracts, sometimes multiple times, to ensure that all necessary regulatory requirements are met.

The main documents in mergers and acquisitions include the Letter of Intent (LOI), a Non-disclosure agreement (NDA) and a definitive agreement.

At Harding Evans, we advise on various company and commercial legal matters, including mergers and acquisitions.

Visit our website to learn more about the business services our experienced solicitors provide. 

Negotiations

A transaction requires negotiation between your interests as well as the interests of the other party. 

Key factors to consider range from the purchase price to warranties, which provide the buyer with a remedy if statements about the target company are incorrect, resulting in the value of the business acquired being lower than anticipated.

While some negotiations are more sensitive than others, commercial solicitors will protect your interests and be able to negotiate favourable terms.

How We Can Help 

A range of legal issues can arise during different stages of the mergers and acquisitions process.

At Harding Evans, we have years of experience supporting clients during mergers and acquisitions. We always provide a professional, efficient approach to drive the deal to a successful conclusion within an acceptable time frame.

Get in touch with a member of our team to find out more about how we can assist you.